Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153541
Authors: 
Heider, Florian
Hoerova, Marie
Year of Publication: 
2009
Series/Report no.: 
ECB Working Paper 1107
Abstract: 
We study the functioning of secured and unsecured inter-bank markets in the presence of credit risk. The model generates empirical predictions that are in line with developments during the 2007-2009 financial crises. Interest rates decouple across secured and unsecured markets following an adverse shock to credit risk. The scarcity of underlying collateral may amplify the volatility of interest rates in secured markets. We use the model to discuss various policy responses to the crisis.
Subjects: 
collateral
Credit risk
financial crisis
Interbank Market
liquidity
JEL: 
G01
G21
E58
Document Type: 
Working Paper

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